Bruce Cooper, 50, chief investment officer at the investing arm of Toronto-Dominion Bank, said the firm pulled back on its six-year preference for stocks and is buying fixed-income products across its portfolio, especially corporate bonds.

“I’m not going to get rich buying a core portfolio of bonds at current rates,” Cooper said in an April 29 interview at Bloomberg’s office in Toronto. “If we’re up against the goalposts and the market falls 15 per cent, I can’t do anything except apologize to my clients. If I’m in the middle, I can say we reduced risk.”

TD Asset Management, which runs the lender’s mutual funds and portfolios for institutional investors, manages about $300 billion, including $140 billion in fixed income and $80 billion in equities.

It’s the second-largest asset manager in Canada after Royal Bank of Canada, according to Dec. 31 rankings from Toronto-based Investor Economics.

TD’s more defensive stance contrasts with continued investor optimism in stocks, from North America to Europe. The Standard & Poor’s 500 Index surged to a record April 24 and has rallied about 140 per cent since the financial crisis in 2009. Canada’s benchmark S&P/TSX Composite Index has climbed about 65 per cent in the same period, putting its record from last September into view.

In Europe, the rally in equities still has legs, Antonin Jullier, a Citigroup Inc. strategist said on Thursday, even after about a 15 per cent advance. Jullier expects firms there to follow the lead of their U.S. counterparts by ramping up share buybacks.

TD’s Cooper isn’t buying it.

“We live in a low-growth world,” he said. “We mean for the next 10 to 20 years. Returns in the next 12 to 18 months will be lower than they have been since the crisis and volatility will be higher.”

While TD’s earlier bet on equities, particularly in the U.S., has paid off handsomely, prices for stocks have become too expensive, Cooper said. The S&P 500 index trades at about 18 times earnings, the highest since 2010, while the TSX is at about 20 times earnings.

“We’re not giving up a lot of upside by selling equities,” he said. “Equities are somewhere between fair and expensive. We enjoyed the ride, we were overweight, we did well. This is about risk mitigation.”

Boiling Frog

Cooper is concerned investors have become numb to the struggles of Greece and the wars in the Middle East, which could cause stock-market instability to flare.

“It feels like that old boiled frog analogy,” Cooper said, referring to a science experiment in which a frog placed in cold water won’t jump out as the temperature rises because it doesn’t notice.

“If Greece left the eurozone it would be a market event,” he said. “People have been living with Middle East unrest so long we don’t even really notice.”

Cooper doesn’t expect his strategy of buying primarily Canadian and investment-grade corporate debt to earn outsized returns. Rather, it’s about “keeping your powder dry” for when opportunities arise in a market downturn. TD has more than 100 approved names for debt investments, including the nation’s banks and companies such as pipeline operator Enbridge Inc.

He isn’t buying European bonds, where yields have began to turn negative for some issuers.

“We were taking the maximum amount of risk, now we want to take more moderate risk,” Cooper said. “That requires us to buy a few more bonds.”